What Should I Charge? Check if you are undercharging

Why so many owners undercharge

Nobody hands the self-employed a salary band. Most people pick a first rate by guessing what a client will accept, or by copying what they earned as an employee, and then never revisit it. The trouble is that an employee's wage leaves out everything you now pay for yourself: self-employment tax, software, insurance, holidays, and the hours spent quoting, invoicing and chasing that nobody pays you for. Fear plays a part too. Raising a price feels like a risk, and keeping it low feels safe, until a full diary still does not cover the bills.

What undercharging costs you

Working more hours cannot fix a rate that is too low, because every extra hour is sold at the same loss. It also sets a price anchor with your clients that gets harder to move each year, leaves nothing for slow months, and makes it hard to hire help, since there is no margin to pay anyone from. That is why this check gives you two numbers instead of one guess: what the market pays for the work, and what you personally need to charge to hit your income goal. Read them together and you have a sensible range to price inside.

If the check says you are undercharging

• Quote new clients at the new rate first. Nobody has an old price to compare it with.
• Give existing clients notice in writing, with a date, rather than raising the price on the next invoice without warning.
• Price larger work by the project instead of by the hour, so getting faster pays you rather than costing you.
• Put a date in your calendar to run this check again every year, and whenever your costs rise.

Then check that a typical job actually clears the new rate with the profit margin calculator.

Where the market range comes from

The market range uses the U.S. Bureau of Labor Statistics Occupational Employment and Wage Statistics program, the government's annual survey of wages by occupation and state. We map your experience level to wage percentiles: new to the 25th, experienced to the median, and expert to the upper quartile.

One important caveat, and the reason this tool does not stop at the market number: that survey covers employees and leaves out self-employed workers. So the figure is a solid anchor for what the work is worth, but as a freelancer you usually need to charge more than an employee earns, because you are also covering your own taxes, downtime, tools, and overhead. That is exactly what the break-even rate below accounts for.

How the break-even rate is calculated

Your break-even rate is the floor you can charge without going backwards on your income goal. The math is straightforward:

• Take your desired annual income and gross it up for self-employment tax, so the money left after tax still matches your goal.
• Add your annual business expenses.
• Divide by your annual billable hours, which is your billable hours per week times 50 weeks (allowing about two weeks off a year).

We use the current U.S. combined Social Security and Medicare self-employment tax rate of 15.3% as the default, published by the IRS. The billable-hours and business-expense figures start from a Solo or Small team preset, and you can change both under "Adjust assumptions" to match your own situation.

Use it as your freelance hourly rate calculator

Freelancers reach for a freelance hourly rate calculator to answer one question: what should I charge per hour? This tool answers it two ways at once. It shows a market rate range built from real government wage data for your kind of work and your location, and it shows your own break-even rate from your income goal, billable hours, and expenses. Set your rate somewhere between the two: at or above your break-even so the numbers work, and near the market range so you stay competitive. It is a freelance hourly rate calculator grounded in real data, not a round number someone guessed.

Once you have a rate, the profit margin calculator checks whether a given job actually clears it. Driving for work is a deduction that quietly raises your effective rate, and the mileage deduction calculator prices it.

FAQs

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